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Latvia

Payroll In Latvia

Latvia is a suitable destination for foreign investment due to its competitive business environment, attractive tax system, steady monetary policy, strategic geographic location, skilled labor, and well-developed infrastructure. It ranks 19th in the 2020 Ease of Doing Business Index, suggesting that foreign investors can efficiently conduct their business in the country.

Companies intending to extend their business in Latvia should be well-versed with local rules and regulations set by the Latvian government. Besides, a company should be thoroughly familiar with tax systems, payroll options, salary structure, payroll cycle, entitlement and termination terms, social security contributions, etc. This knowledge also helps manage payroll in Latvia and attract a skilled workforce.

You should fully understand payroll tax in Latvia and labor requirements compliance to establish error-free payroll. The below guide discusses all the key features of payroll in Latvia.

How Is Payroll Calculated in Latvia?

The payroll policies and procedures in Latvia focus on supervising employees’ working hours and releasing payment. Following the rules, you should focus on social security contributions and other appropriate deductions. You should regularly maintain record-keeping to guarantee error-free payroll calculation.

The formula to calculate payroll is:

Net Salary = Gross Salary – Gross Deductions

here,

Gross Salary = Basic Salary + Reimbursements + All types of Allowances + Bonus + HRA + Arrears

and

Gross Deductions = Income Tax + Professional Tax + Leave adjustments + Public Provident Fund + Insurance + Loan repayments (if applicable)

Important Elements of Salary Structure in Latvia

The elements discussed here constitute the salary structure in Latvia:

Cost to Company (CTC)

The CTC denotes an annual amount a company incurs when recruiting an employee. It covers aspects like payroll deductions in Latvia, employees’ gross and net remuneration, additional benefits, etc.

Gross salary

It signifies all factors based on which an employer designs an employee compensation package. It covers factors like health insurance, social security contributions, total income before calculating payroll deductions in Latvia, etc.

Net salary

After computing all deductions from the gross salary, it specifies the amount transferred to an employee’s bank account.

Basic salary

It represents the amount employees receive after the employer calculates all additions and payroll deductions in Latvia from the annual package. The corresponding amount depends on the employer’s job role and the sector’s undertakings.

Allowances

The payroll in Latvia entitles all employees in the country with various allowances like differential personal allowance (DPA), paid time off allowance, maternity allowance, etc., regardless of the industry and the employer. It denotes all the occupational expenditures that employers must pay to their employees. It supports the employees by fulfilling a work-life balance. 

How to Set Up a Payroll in Latvia

The below Latvia payroll process flow chart help businesses planning to set up payroll in Latvia:

  • Step 1: Register a business in Latvia with the Register of Enterprises. The step also authorizes your business name’s validity first.
  • Step 2: Register the company name, national tax number, and labor and tax registration.
  • Step 3: Obtain a state or local business ID (if required).
  • Step 4: Mention information about each employee, including their full name, employment joining or termination date, date of birth, address, tax filing number, and compensation details. It also covers each employee’s job title, annual salary, bank details, work certificates from their previous employees, and a personal income tax form. These data help you calculate all pay amounts of employees precisely by following the payroll policies and procedures in Latvia.
  • Step 5: Categorize your employees among part-time, full-time, and independent contractors.
  • Step 6: Register with the Latvian State Revenue Service (SRS) within ten days of accepting an agreement with an employee on the performance of work for remuneration. The employer should submit this agreement signed with the employee.
  • Step 7: Get a Latvia tax number, i.e., VAT (Pievienotas Vertibas Nodokla).
  • Step 8: File an electronic hiring notification with the local authorities latest by the day before the start of the employment
  • Step 9: Open a Latvia bank account with a registered local bank to release payroll-related payments. The corresponding requirements to be met are the application form provided by the selected bank, valid identification documents (passport), and proof of residence for those who already reside here (including a payslip, recent utility bill, or driver’s license).
  • Step 10: Calculate the employee’s net payroll sum and approve your company’s payroll cycle and system.
  • Step 11: Pay each employee through a local entity (which allows you to hire and pay employees legally) or utilize services from an Employer of Record (EOR) platform in Latvia. The supported payment methods are cash, direct deposit, paper checks, mobile wallet, or prepaid cards.

A Step-by-step Process of Payroll Processing in Latvia

The details of the three stages of processing payroll in Latvia are as follows:

Pre-payroll stage

This stage works on Latvia’s legal requirements to process payroll and payments. The following section discusses its mandatory components:

Business Profile

You must register your business as a legal body.  The Latvijas Republikas Uzņēmumu Reģistrs (Register of Enterprises of the Republic of Latvia) handles the business registration process and provides you with a unique business number. Make sure to mention this number on all formal payroll communications.

Attendance policy

The attendance policy stipulates the payroll policies Latvia set for the employees’ attendance. Hence, this policy simplifies payroll calculation. It helps you calculate standard and special attendance, overtime, permissions, etc. 

Statutory components

It defines the existing and new statutory compensation laws and principles that benefit employees with salary and leaves entitlements.

Salary components

It covers different factors influencing salary calculation, i.e., payroll tax in Latvia, allowances, deductions, and leave entitlements.

Payment schedule

The component defines the day employers should release employee payments. It mentions a fixed payment schedule to avoid payment delays. With this component, employees stay updated on when they will get monthly payments.

Employee details

You should collect the personal and professional data of all your employees. These data include employees’ names, job designations, sectors, nationalities, etc. The payroll software should store all these details. This data serves as evidence and ascertains that the employees get timely payments whenever any payroll-related disputes arise. The employers should mention the details of all active employees. Subsequently, they must enter these collected details into the payroll software.

Payroll calculation stage

In this stage of the payroll compliance checklist in Latvia, you should enter the data gathered from the above stage into the payroll system. You should calculate taxes and deductions and track working hours. Subsequently, you should calculate employees’ net salaries and print paychecks to ensure accurate payroll management.

Make sure to calculate and maintain payroll records either automatically or manually. Thus, you can process payments timely.

Post-payroll stage

The details of the components in this stage of the Latvia payroll compliance checklist assist you in determining the payroll process.

Statutory compliance

The payroll supervisor must strictly abide by statutory compliances during payroll processing. They should consider deductions like personal deductions, business deductions, social security deductions, and more from the employee’s payroll. The employer submits the equivalent amount of these deductions to the respective authorities or government bodies.

Payroll accounting

This component tracks payments and payroll-based expenditures that help you achieve timely and error-free payments. You can utilize internal payroll accounting (to reduce expenses) or outsource it to a reliable external auditing service.

Payroll reporting and compliance

You must organize all statutory reporting and compliance forms to send to local regulatory authorities. It covers all compensation, contributions, withholdings, and other information inquired about in your compliance and reporting forms.

Payroll Contributions

Both employees and employers should make social security contributions depending on their salary to meet Latvia payroll requirements.

Employer contribution

23.59%

National Social Insurance and Solidarity Tax (NSIC) for Employment with company registered in Latvia/EU/EEA (split rate)

20.77%

National Social Insurance and Solidarity Tax (NSIC) for Employment with company registered in Latvia/EU/EEA (employee eligible for retirement-split rate)

Employee contribution

Employee payroll contributions include the following elements following the payroll tax in Latvia.

Employee payroll contributions

10.50%

National Social Insurance and Solidarity Tax (NSIC) for Employment with company registered in Latvia/EU/EEA (split rate)

9.25%

National Social Insurance and Solidarity Tax (NSIC) for Employment with company registered in Latvia/EU/EEA (employee eligible for retirement-split rate)

Employee income tax

Annual tax base

Tax rates

up to 20,004 EUR

20%

20,005 – 62,800 EUR

23%

More than 62,800 EUR

32%

Payroll Cycle

Generally, the payroll frequency in Latvia is monthly. If the employer and employee haven’t agreed on payment once per month, the employer should release payments at least twice a month.

Latvia Payroll Options for Companies

According to the company’s requirements and budget, employers can select from diverse options payroll  processing. Let’s go through the details of various HR payroll options in Latvia.

  • Internal payroll: Larger companies having long-term contracts with Latvia can implement internal payroll. This Latvia payroll guide stipulates that the company should engage a talented workforce to set up internal payroll.
  • Remote payroll: This HR payroll in Latvia focuses on using remote payroll with your company. The remote payroll remunerates the employees. It is a cost-effective option, but the outsourced remote payroll company should know various labor laws in Latvia.
  • Latvia payroll processing company: It implies using services from a genuine payroll processing firm with experience in payroll rules and regulations in Latvia and establishing payroll. Companies looking to test markets before committing to a more long-term endeavor can rely on the said option. 
  • Latvia payroll outsourcing: It helps you to manage  payroll in Latvia conveniently, flexibly, and cost-effectively. It guarantees payroll process compliance with the Latvia payroll requirements. It supervises all elements of the Latvia payroll process, dismisses all related challenges, and retains your focus on the company’s growth. Companies can use services from an international PEO service provider like Multiplier.

Entitlement and Termination Terms

Entitlement terms in Latvia

Employers offer the following benefits to employees as per the payroll rules and regulations in Latvia.

Paid time off

  • Employees who have worked for at least six consecutive months are eligible for annual leave.
  • The minimum number of annual leave is 20 days excluding public holidays.
  • Employees below age 18 get one month of annual paid leave.
  • Based on the employer and employee agreement, employees may get annual paid leave in parts. One part of the current year’s annual leave should be equal to two continuous calendar weeks.

Sick leave

  • Employees who have worked for at least one month are eligible for ten days of sick leave.
  • The employer pays the sick leave at a 75.00% rate of the standard salary for the initial three days.
  • The sick leave compensation increases to 80.00% for the fourth to the tenth day of sick leave.
  • If the employee remains sick for more than ten days, the government pays the sick leave compensation for up to 52 weeks.

 Maternity leave

  • Female employees receive 112 days of paid maternity leave (56 days before the child’s birth and 56 days after the child’s birth).
  • The government pays maternity leave compensation at 80.00% of the standard salary.

Paternity Leave

  • Employees in Latvia get up to 10 days of paternity leave.
  • The child’s father can take paternity leave instantly after the child’s birth, within 6 months after birth.

Parental Leave

  • Each of the parents is entitled to parental leave in Latvia.
  • The right to parental leave is valid for up to 18 months until the child reaches eight years.
  • Employees can take it over a single period or in parts per the employer’s agreement.

Public holidays

  • Employees in Latvia get 13 public holidays per year.

1 Jan

New Year’s Day

7 Apr

Good Friday

10 Apr

Easter Monday

 1 May         

Labour Day

 4 May          

Independence Restoration Day

5 May

Independence Restoration Day Holiday

23 Jun

Midsummer’s Eve

24 Jun

St John’s Day

18 Nov

Independence Day

24 Dec

Christmas Eve

25 Dec

  Christmas Day

26 Dec

2nd Day of Christmas

31 Dec

New Year’s Eve

Termination terms in Latvia

  • An employer in Latvia can terminate an employee working a fixed-term contract based on personal, business, or worker misconduct-related causes. 
  • The termination needs a written explanation and a notice.
  • If the termination cause is misconduct, the employer must provide a warning to the employee. In this case, the employee obtains a chance to clarify their actions.
  • The minimum notice period is one month.

Severance pay

  • The severance pay for an employee depends on the employment duration as mentioned below:

Duration of employment

Severance Pay

Up to 5 years

1 month

5-10 years

2 months

10-20 years

3 months

>20 years

4  months

Latvia Payroll Processing Company

Foreign stockholders should profoundly understand local tax, employment, and compensation requirements and report to ascertain the payroll in Latvia is up-to-date, precise, and compliant. Besides, they should have expertise in adhering to Latvian Labor and local employment laws before establishing payroll in Latvia. You can use services from a global PEO company like Multiplier to acquire the optimum benefits the country has to offer.

How Multiplier Can Help with Global Payroll

The payroll administration in Latvia oversees all payroll-related facets, from payroll calculation to employees’ entitlement and termination terms. Due to the laborious payroll process, employers may not self-sufficiently follow the payroll rules and regulations in Latvia. You can use the services from a worldwide PEO platform like Multiplier to discard these problems and employ the Latvia payroll process.

Multiplier is popular for offering EOR solutions to international firms, allowing them to test and operate in 150+ nations. Our ingenious staff administers the Latvia payroll process, employee onboarding, payroll tax in Latvia, employer and employee contributions, and other resembling tasks. We provide one-click payroll for international firms with payments released in local currency. Also, our SaaS-based PEO services ensure that payroll processing concludes efficiently in the country.

Frequently Asked Questions

The standard working hours in Latvia are 8 hours per day, 40 hours per week.

In Latvia, overtime pay is at least 100% of the standard salary. The employment contract can stipulate higher overtime pay depending on the work performed.

As per payroll rules and regulations in Latvia, the minimum wage paid to employees is 620 EUR per month.

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